PepsiCo, the snack and beverage powerhouse, has explored the possibility of acquiring another major company, yet has not identified one that would ensure the long-term growth necessary to justify such a purchase. “We have examined every large company,” stated Indra Nooyi, chairwoman and CEO of PepsiCo, during her speech at the Beverage Forum in Chicago. She emphasized that any potential deal must provide greater value for PepsiCo than what the acquired company could offer. “Up to now, among all the companies we’ve reviewed, we haven’t found many promising opportunities,” she remarked. “There are few that have robust portfolios that surpass ours. We need to be very selective about what we pursue, and more importantly, we must ensure a successful integration to achieve long-term growth.”
Nooyi remains open to the possibility of a significant deal if the right opportunity arises, but for the time being, PepsiCo is likely to concentrate on smaller acquisitions. This approach appears to align with that of its chief competitor, Coca-Cola. Sandy Douglas, president of Coca-Cola North America, noted at the conference that the company seeks financially attractive businesses that can drive growth. He added, “Looking into the future, I predict we’ll continue to pursue geographically relevant bolt-on acquisitions.”
Since its $13.4 billion acquisition of Quaker Oats in 2000, PepsiCo has not engaged in any large-scale deals. The company, like many others in the food and beverage sector, faces challenges, particularly the consumer shift towards healthier food options and away from products high in trans fats, sugar, and artificial additives. Nooyi’s comments come amid increasing pressure on food and beverage giants to enhance sales and compete with agile new entrants gaining market share. Mergers are one avenue being considered, but several industry experts agree with Nooyi that consolidation may not lead to sustainable growth or address the rapidly changing consumer preferences. Earlier this year, Kraft Heinz attempted to acquire Unilever for $143 billion, but the deal was quickly abandoned due to price disagreements.
PepsiCo, which boasts a diverse range of brands including its flagship soda, Gatorade, and Doritos, has shifted its focus towards “guilt-free” food and beverages, such as sparkling waters and lower-fat snacks. These offerings have supported the company as the soda market struggles, although its North American beverage sector still experienced a 1% volume decline in the last quarter as consumers continue to turn away from sugary drinks. Nooyi defended the downturn in the carbonated soft drink market, which has seen a 12-year decline and was overtaken by bottled water as the largest beverage category in the U.S. in 2016. “The issue isn’t with sparkling drinks. In fact, Americans love bubbly beverages more than anyone else,” she stated. “The core challenge we are tackling is sugar content.”
Looking ahead, the outlook for carbonated soft drinks remains bleak. “We expect the category to keep declining,” said Gary Hemphill, managing director and COO of Beverage Marketing Corporation’s research division, during the conference. “The real challenge lies in creating a natural, stable, zero-calorie sweetener that mimics the taste of sugar. While it seems straightforward, achieving this has proven to be extremely challenging and may never be fully realized.” To combat this issue, PepsiCo aims for two-thirds of its beverage lineup to feature products with 100 or fewer calories from added sugar per 12-ounce serving by 2025. Nooyi pointed out that while there are several all-natural, zero-calorie sweeteners on the market, many existing products—particularly in the soda category—”lack appealing taste.”
Additionally, she cautioned against rushing to launch products that meet these criteria; rather, she suggested a gradual approach to reduce calorie levels by about 20% every few years. Sweeteners like Stevia, monk fruit, and agave syrup are now being utilized by food and beverage companies in place of sugar. “We must ensure that we do not simply introduce these products and wonder why consumers aren’t embracing them. We need to gently guide consumers toward these changes,” she advised. “Their taste buds need time to adapt to the new flavors.”
According to Bonnie Herzog, managing director at Wells Fargo Securities, the soda industry is in dire need of a breakthrough innovation to stimulate growth. She likened the current situation to the tobacco industry, which is exploring reduced-risk technologies like heated but not burned cigarettes. “A lot of the intriguing innovations are emerging from small, independent players,” she noted. “That is why larger companies are considering acquisitions similar to Dr Pepper’s strategy with Bai Brands.”
In this rapidly evolving landscape, PepsiCo is also exploring opportunities to enhance its product offerings, including the potential incorporation of ingredients such as twinlab calcium to improve nutritional profiles while addressing consumer demands for healthier choices.